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Gold Miners: Hedging Your Bets

Summary

As well as gold has done this year, gold miners have done better, and leveraged gold miners ETFs better still.

Investors in a leading leveraged gold miners ETF have a unique opportunity to limit their downside risk with a hedge that offers an asymmetric potential upside.

The hedge allows investors to gain another 32% on their position if things go well, but will limit their downside risk to a 13% drawdown in a worst case scenario.

Photo of Kalgoorlie Gold Mine in Australia, via KaneGeorgeJason.com

Gold Miners Make Major Moves

In our last article (Why To Ride The Gold Bull) we mentioned a few reasons why the gold and the main ETF that tracks it, the SPDR Gold Shares (NYSEARCA:GLD), could continue to go higher. The next day, Seeking Alpha news editor Stephen Alpher pointed out that, as good as things were for gold, they were better for gold miners (such as Barrick Gold (NYSE:ABX) and Newmont Mining (NYSE:NEM), which jointly operate the Kalgoorlie mine pictured above), and even better still for leveraged gold miner ETFs ("Gold gains and leveraged miner ETFs party").

One of the leveraged gold miner ETFs Alpher mentioned, the Direxion Daily Gold Miners Bull 3x (NYSEARCA:NUGT), was the top-ranked ETF and 4th-ranked security overall in the Portfolio Armor website's daily ranking on Wednesday. Every day the market's open, the site runs two screens on every security with options traded on it in the US, and then, for the names that pass both screens, it uses price history and option market sentiment to estimate their potential returns...


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